Improving Your Credit Score

What is a Credit Score?

If you are in the market for a home loan or any other line of credit, one of the most important factors in establishing your credit worthiness is your FICO Credit Score. Simply put, this is a numerical value based on your personal credit history, ranging from 300-850. Your credit score is based on your credit report, sourced from credit bureaus including Experian, TransUnion, and Equifax. The better your credit history, the better your FICO score.

Your credit score is important because it illustrates your ability to handle credit. A consumer who has trouble paying bills on time, or takes on debt larger than they can repay, presents a much higher risk than someone who regularly pays their bills on time and shows a history of aptly managing their finances. The score is not just for banks to assess their risk, but also a way for you, the consumer, to analyze and improve your own credit worthiness!

5 Factors of a Credit Score

There are a number of factors that affect a person’s credit score. But the FICO score is based primarily on 5 main factors:

1. Are you an “on time” payer?
   It’s very important that you regularly pay your bills on time, as this factor contributes 35% if your score.
   
2. What is your total debt?
   Using more than half of your available credit can hurt your score. Using 75% or more rapidly decreases it. And if you “max out” a credit card, you may be considered a “high-risk” borrower. This factor contributes 30% of your score.
   
3. How long is your credit history?
   They say “time heals all things,” and in the case of credit history, it’s true! The longer one’s credit history, the better. 15% of the score.
   
4. How many times have you applied for credit?
   10% of the FICO score. If, between getting approved and closing on a loan, you open a new line of credit, it can negatively affect your credit score.
   
5. The type of credit you handle well.
   The greater the variety of credit that you handle well (mortgage, revolving credit, student loan, auto payments, etc.), the higher your score. 10% of your score.

What Steps Can I Take to Improve my Score?

The first thing you need to do is view your credit report. American consumers are entitled to one free copy of your credit report, every 12 months, from each of the three reporting agencies. You can also pay a small fee to view your actual credit score. Keep in mind the credit score and credit report are related, but not the same thing.

If your credit score is less than stellar, there are some actions you can take that will raise it to a favorable level.

1. Dispute errors on your credit report.
   It’s very important to check your credit score and view your report for accuracy. Credit reports often have errors or show instances of fraud or identity theft! You can dispute errors that appear on your report. If successful, those negative entries will be removed from your credit report, improving your credit score.
2. Pay your bills on time.
   Your payment history makes up over a third of your FICO score. Ensure you are paying all of your bills on time each month before the due date.
   
3. Leave (good) old debt on your report.
   Don’t remove an account from your credit report just because it’s paid off. Good debt – debt that you’ve handled well and paid as agreed – is good for your credit.
   
4. Become an authorized user.
   Learn how to use credit responsibly by becoming an authorized user on a friend or relative’s credit card. This adds payment history to your own credit file, helping your credit score.

When you can improve your credit score, not only will you have access to lower interest rates, but the amount of money you qualify to borrow increases. This means big ticket items such as home mortgages, business or car loans will become within your reach!

Keeping your Personal Info Safe!

In this digital age, it is extremely important for consumers to protect their personal info. As mentioned previously, an identity thief can do plenty of damage to your credit score. So be proactive in protecting your personal information, so that fraudsters are unable to tarnish your good credit standing!

Another reason to keep your info safe is so you can avoid becoming what’s known as a “trigger lead.” Have you ever received unsolicited phone calls or emails after applying for credit? Your personal contact info has likely been sold. Not by the lender from which you applied for credit, but from those same three credit reporting agencies that determine your FICO score: Experian, TransUnion or Equifax!

These agencies believe that since you did not tell them explicitly to keep your info private, that they have the right to sell it to the highest bidder. It sounds preposterous, but unfortunately there are no laws in place to stop these reporting agencies froim doing so. But you can take action to prevent the credit reporting agencies from selling your info.

The easiest and fastest way is to use the official Consumer Credit Reporting Industry opt-out website: www.optoutprescreen.com

You can also write individual letters to each of the three reporting agencies, using the following text:

“Please accept this letter as my election to opt-out of the practice known as “trigger leads.”

CREDIT REPORTING AGENCY ADDRESSES:

Premium Mortgage has a policy to NEVER purchase trigger leads, and we have been active in petitioning our congressmen to prohibit this type of activity!

Now that you have this information, I want you to use it to your advantage! Ensure you are periodically checking your credit report and credit score. Pay your bills on time, and continue to improve that FICO score. And when the time comes to secure financing on a new home, I’d be honored if you would come see me at Premium Mortgage. We are the Experts in Home Financing!